Michigan consumer sentiment posts big decline

The University of Michigan’s consumer sentiment index posted a significantly larger-than-expected decline in early July, falling to 66.5 from 76.0 in June. Five-year inflation expectations picked up to 2.9% from 2.8%.


BOTTOM LINE

Consumer sentiment gave back in early July about half the improvement seen since the late 2008/early 2009 lows, although the impact of European and double-dip fears on sentiment was already reflected in the more comprehensive Conference Board consumer confidence report for June. We do not believe that consumer confidence is an important or direct driver of consumer spending (a view supported by both confidence/spending trends in the last two recoveries and academic studies on the relationship between sentiment and spending) but this report has had a significant negative impact on equity prices this morning and it is perhaps worth nothing that to the extent that this report is a rehash of the Conference Board release from June 29th, equity prices already declined 3.1% on the day of that earlier release. This report also does not provide ammunition for deflation case given that medium-term inflation expectations rose in early July and remain in the middle of the range that has prevailed over the last ten years.

Source RDQ

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